Is privatization healthy for the
economy? Does it spawn long lasting benefits for the people at large? Does it
bring efficiencies to the economy? These are the basic questions hovering in
every individual's mind and the answers to these questions are subject to very
dynamic economic environment.

Government of Pakistan has privatized
about Rs. 475.42 billion worth stakes in different public entities since 1991 to
date. The major privatization deals included stakes of banks, energy sector,
telecommunication, industrial units like cement, textile, chemicals,
automobiles, fertilizers and others.

Following notes discuss performances of
privatized units, so that we are all clear about the questions in our minds.

PRIVATIZATIONS IN BANKING &
FINANCIAL SECTOR

Bank

Rs (in millions)

Allied Bank Limited

(51%)

971.6

Muslim Commercial Bank

(75%)

2,420.00

Bankers Equity

(51%)

618.7

Habib Credit & Exchange

(70 %)

1,633.90

United Bank Ltd.

(51%)

12,350.00

Bank Alfalah

(30%)

620

Habib Bank

(51%)

22,409.00

Total Banks

41,023.2

Capital Market Transaction

115,804.2

Financial Sector Total

156,827.4

As evident from the table, we have
witnessed about Rs. 157 billion worth stakes of government entities in financial
sector being disowned in favor of private sector since 1991.

All the major banking sector deals were
finalized until mid 90's except for UBL, HBL, and Bank Alfalah, which were
privatized in 2002-03 while capital market transactions, IPOs and GDR started
getting on fire since start of millennium and attracted Rs. 115.8 billion from
the private sector.

Since 2000, there have been very
dramatic and positive banking sector reforms and the sector's performance
increased drastically. Yes, the privatization process has brought upsurge of
competition and raised standards of living of ordinary individuals in the
country. Increase consumer spending has proved a blessing in disguise. As the
spending increased, it paved way for more local productions and thus the
industry base enlarged.

The banking sector has also been very
helpful for industrial growth as most of the industries on average are operating
on debt, which helps them achieve financial efficiencies.

The privatization process of banking
sector has brought prosperity to the country in general and has brought
efficiencies in money flow. No doubt, efficiencies are the result of strict
regulation but the mother of the idea is higher private equity base.

To save private sector from mounting
losses in case of default government increased pressure for the implementation
of these regulation.

Thanks to BASEL implications on banking
regulation, By virtue of that today our banks are safer in the highest risk
scenario in Pakistan. The banks are now moving to higher consolidation to be
stronger and flexible. This new scenario may reduce number of banks but will
further increase their efficiencies.

PRIVATIZATIONS IN TELECOM
SECTOR

TELECOMMUNICATIONS

RS (IN MILLIONS)

PTCL

(2%)

3,032.5

PTCL

(10%)

27,499.0

26% (1.326 billion) B class of shares of PTCL

156,328.4

Carrier Telephone Industries

500.0

Total

187,359.90

The privatization of PTCL has been the
biggest deal of privatization in Pakistan, which earned government Rs. 156.32
billion during 2005. Overall sector's privatization proceeds have mounted to Rs.
187.36 billion. Initially, 12% was divested through IPO during 1994 and then in
2005 the heavy deal was made.

The induction of the private equity in
telecom sector has changed the sector's dynamics altogether. It has brought the
very positive changes for individuals as the communication has become very
economical and has provided the government with huge revenue in the form of
sales tax. According to government sources, the mobile sector contributed
approximately Rs. 63 billion taxes to the national exchequer accounts during
FY-07. The sector's revenues were Rs. 236 billion during FY07.

Are the changes long lasting? Yes, the
changes are long lasting as the companies have established heavy equity & asset
bases and their products (mobile communications) are now becoming necessities
for people across the country. The industry has achieved 52% tele-density and
the remaining 48% is yet to be explored. The sector has still higher prospects
and the increasing private equity holdings will increase competition, expand
tele-density, and benefit individuals, government, and the industry as a whole.

PRIVATIZATIONS IN ENERGY SECTORS

ENERGY SECTOR

RS (IN MILLIONS)

Mari Gas

(20%)

102.4

Kot Addu Power Company

(26%)

7,105.0

Kot Addu Power Company

(10%)

3,046.0

Kot Addu (Escrow A/c)

.

900.7

SSGC LPG business

.

369.0

SNGPL LPG business

.

142.0

Badin II (Revised)

.

503.2

Adhi

.

618.9

Dhurnal

.

161.0

Ratana

.

24.6

Badin I

.

6,433.0

Turkwal

.

75.6

NRL (51% GOP shares)

.

16,415.00

KESC (73% GOP shares)

.

15,859.70

Total

.

51,756.10

This is another very important sector,
which is to be privatized by the government. Although some of the private
entities are operating in the sector, but mostly there are public sector
entities. In the oil sector, PSO rules the front end and PPL, OGDC rule the back
end, while Oil & Gas Regulatory Authority of Pakistan governs the pricing
mechanism. The private sector has very less to speak on their part.

On the other hand, electricity sector
is ruled by WAPDA. KESC is actually troubled with the fact that it cannot do
much but with the permission of government.

Now back to the analysis; the sector is
very lucrative and renders huge profits to the government. However, the benefits
from the sector are not directly flowing to the public at large. Public cannot
benefit of global oil price reduction. The sector is the most heavily taxed and
individuals and the entities operating in the sector cannot do much to bring the
benefits for individuals at large. There is no competition factor involved,
which reduces the efficiencies of the companies operating in these sectors.

CONCLUSION

Practically speaking, privatization has
more benefits for the economy, individuals, and companies, if government fairly
regularizes it like happened in banking sector and furthermore if there is fair
competition between the entities.

The government is planning to privatize
PSO, SME Bank, electricity companies and some more stakes in the privatized
companies. It is important to note that PSO's privatization is a very different
case from the above-mentioned examples.

PSO holds about 60%-80% of different
oil and gas products in the country. This means PSO has the monopoly in the
sector. Monopoly by the government is relatively beneficial for the masses but
when it is bestowed with private ventures, it has always-negative implications
for the public.

The current government will face many
problems in privatizing PSO as its management is not in favor of the government
policies and secondly, the nature of the its business is of such an immense
importance that the buyers and the government will always remain in conflicts at
different regulatory matters. Advisably, PSO should not be privatized until it
holds sway over the sector.